U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended August 31, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from_____ to _____
Commission File Number 0-23386
CRYO-CELL INTERNATIONAL, INC.
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(Exact name of Small Business Issuer as Specified in its Charter)
DELAWARE 22-3023093
- -------------------------------- -------------------
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
3165 MCMULLEN BOOTH ROAD, BUILDING B, CLEARWATER, FLORIDA 33761
---------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's phone number, including area code: (727) 723-0333
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report).
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date. As of August 31, 1999,
8,815,955 shares of $0.01 par value common stock were outstanding.
Transitional Small Business Disclosure Format (check one).
Yes [ ] No [X]
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets .............. 3
Condensed Consolidated Statements of Operations .... 5
Condensed Consolidated Statements of Cash Flows .... 6
Notes to Condensed Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS ................ 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ................................... 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................... 19
SIGNATURES .................................................. 20
2
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1999 1998
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 133,738 $ 499,696
Stock subscription receivable -- 150,000
Accounts receivable and advances (net of allowance for
doubtful accounts of $13,380 ) 59,845 47,642
Receivable - litigation (See Note 9) 510,178 --
Marketable securities 113,601 198,114
Refundable income taxes -- 8,078
Prepaid expenses and other current assets 234,692 79,690
---------- ----------
Total current assets 1,052,054 983,220
---------- ----------
PROPERTY AND EQUIPMENT
Property and equipment, net 2,380,443 2,371,993
---------- ----------
OTHER ASSETS
Intangible assets (net of amortization of 70,032 69,462
$47,199 and $42,269, respectively)
Marketable securities 222,984 521,279
Deposits with vendors and others 44,445 133,175
---------- ----------
Total other assets 337,461 723,916
---------- ----------
TOTAL ASSETS $3,769,958 $4,079,129
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
3
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1999 1998
------------ --------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 324,472 $ 293,159
Accrued expenses and withholdings 137,505 291,788
Short term borrowings 15,000 565,000
Convertible notes payable 10,000 540,000
Current portion of obligations under capital leases 4,869 4,805
------------ ------------
Total current liabilities 491,846 1,694,752
------------ ------------
OTHER LIABILITIES
Unearned revenue 133,196 75,236
Deposits 25,000 25,000
Obligations under capital leases-net of current portion 22,527 15,928
------------ ------------
Total other liabilities 180,723 116,164
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock (500,000 $.01 par value authorized; -- --
0 issued and outstanding)
Common stock (15,000,000 $.01 par value common shares
authorized; 8,815,955 at August 31, 1999 and 7,654,598
at November 30, 1998 issued and outstanding) 88,060 76,546
Additional paid-in capital 10,686,709 8,651,428
Net unrealized gain (loss) on marketable securities (63,415) 319,393
Accumulated deficit (7,613,965) (6,779,154)
------------ ------------
Total stockholders' equity 3,097,389 2,268,213
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,769,958 $ 4,079,129
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
4
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE $ 330,824 $ 110,650 $ 862,040 $ 199,125
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 133,441 22,739 364,879 47,221
Marketing, general & administrative expenses 951,775 560,157 1,981,775 1,480,115
Research, development and related engineering 20,206 45,403 62,711 155,219
Depreciation and amortization 28,580 33,958 85,741 113,958
----------- ----------- ----------- -----------
Total Cost and Expenses 1,134,002 662,257 2,495,106 1,796,513
----------- ----------- ----------- -----------
OPERATING PROFIT (LOSS) (803,178) (551,607) (1,633,066) (1,597,388)
----------- ----------- ----------- -----------
OTHER INCOME AND (EXPENSE):
Interest income 1,176 366 1,176 10,473
Interest (Expense) (375) (14,303) (2,921) (39,057)
Award on litigation (See Note 5) 459,000 580,800 800,000 580,800
Other income -- 75,014 -- 75,014
Gain on sale of unconsolidated affiliate's stock -- 191,756 -- 446,855
----------- ----------- ----------- -----------
Total Other Income 459,801 833,633 798,255 1,074,085
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE EQUITY IN NET LOSS OF
UNCONSOLIDATED AFFILIATE AND
PROVISION FOR INCOME TAXES (343,377) 282,026 (834,811) (523,303)
Provision for income taxes -- -- -- --
Equity in net loss of unconsolidated affiliate -- 85,035 -- 305,427
----------- ----------- ----------- -----------
NET INCOME (LOSS) ($ 343,377) $ 196,991 ($ 834,811) ($ 828,730)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE ($ 0.04) $ 0.03 ($ 0.10) ($ 0.11)
=========== =========== =========== ===========
Number of Shares Used In Computation 8,728,129 7,272,590 8,379,654 7,238,450
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
5
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
AUGUST 31, AUGUST 31,
1999 1998
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (834,811) $ (828,730)
Adjustments to reconcile net loss
to cash used for operating activities:
Depreciation and amortization 85,741 113,958
Equity in loss of unconsolidated affiliate -- 305,427
Gain on sale of investments -- (446,855)
Payment of consulting and professional services with stock 451,476 142,392
Changes in assets and liabilities:
Accounts receivable (12,403) (33,820)
Receivable litigation (510,178) (580,800)
Prepaid expenses and other current assets (155,002) (21,923)
Accounts payable 31,313 (3,002)
Unearned revenue and deposits 57,909 86,140
Accrued expenses (154,283) 13,156
Refundable income taxes 8,078 3,230
Deposits and other 88,730 (108,533)
----------- -----------
NET CASH USED FOR OPERATING ACTIVITIES (943,430) (1,359,360)
----------- -----------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of property and equipment-net (84,260) (109,359)
Proceeds from sale of investment -- 446,855
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES $ (84,260) $ 337,496
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock -- 80,051
Sale of stock options -- 67,500
Repayment of debt (1) (550,000) --
Sale of common stock 1,215,208 137,500
Borrowing on line of credit -- 50,000
Principal payments under capital leases (3,776) (885)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES: 661,432 334,166
----------- -----------
Decrease in cash and cash equivalents (366,258) (687,699)
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements
6
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED
-----------------------
AUGUST 31, AUGUST 31,
1999 1998
(UNAUDITED) (UNAUDITED)
----------- ------------
Cash and cash equivalents:
Beginning of year 499,696 814,156
-------- --------
End of period $133,438 $126,457
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,921 $ 39,057
-------- --------
Income taxes $ -- $ --
-------- --------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
(1) The Company borrowed $530,000 on convertible promissory notes. The loans
were converted to 302,000 shares of the Company's common stock at a price of
$1.75 per share.
The accompanying notes to consolidated financial statements are an integral
part of these statements.
7
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1999
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS
The Consolidated Financial Statements including the Consolidated
Balance Sheet as of August 31, 1999, Consolidated Statements of Operations for
the nine months ended August 31, 1999 and Consolidated Statement of Cash Flows
for the nine months ended August 31, 1999 have been prepared by the Company,
without audit. In the opinion of Management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and changes in cash flows at August 31, 1999 and
for all periods presented have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's November 30, 1998 Annual
Report on Form 10-KSB.
NOTE 2 - MARKETABLE SECURITIES
NET/TECH INTERNATIONAL
In November 1998 the Company's ownership percentage in Net/Tech
International Inc. (NTTI) decreased to less than 20% of the outstanding shares
of NTTI. The Company had accounted for its investment in NTTI in previous years
using the equity method but as of the date upon which its ownership percentage
fell below 20% the Company used the guidance in SFAS 115 ACCOUNTING FOR CERTAIN
INVESTMENT IN DEBT AND EQUITY SECURITIES, to account for the investment. Under
this guidance all of the Company's marketable securities are classified as
available-for-sale as of the balance sheet date and reported at fair value, with
unrealized gains and losses recorded as a component of stockholder's equity.
Since NTTI stock is thinly traded and subject to considerable price fluctuation,
were the Company to attempt to sell large blocks of shares, it is unlikely that
the Company would be able to obtain the exchange market value as listed. This
security is therefore subject to considerable market risk. Since the stock owned
in Net/Tech International, Inc. is subject to trading restrictions a portion of
this investment has been classified as a non-current asset based upon the number
of shares, which may not be sold in 1999.
The Company recognized losses under the equity method for the NTTI
investment during 1998 reducing the cost basis of the stock to $0. An unrealized
gain has been recorded as a component of stockholders equity in the amount of
$295,965 to reflect the fair market value of the investment as of August 31,
1999.
8
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1999
(UNAUDITED)
NOTE 2 - MARKETABLE SECURITIES (CONT'D)
OTHER SECURITIES
In 1997 the Company acquired 100,000 shares of an equity security in
payment for the sale of a Revenue Sharing Agreement. The original cost as
determined by the trading price on the date of acquisition was $400,000. The
fair value of this security as of August 31, 1999 and 1998 was $40,620 and
$72,000 respectively and the unrealized holding loss on this security was
$359,380 and $328,000 as of August 31, 1999 and 1998 respectively.
NOTE 3 - LINE OF CREDIT
In August 1997, the Company entered into a one-year line of credit
agreement with NationsBank, N.A. ("the Bank") whereby the Company borrowed
$550,000 from the Bank. As part of the agreement, the Bank received a $10,000
commitment fee. The agreement expired on August 21, 1998 and in December 1998,
the loan was paid in full.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
In June 1998, the Company entered into an agreement, with World Medical
Match, a non-profit corporation, whose mission includes assisting the poor with
funds to provide them access to medical matching opportunities. The agreement
states that World Medical Match agrees to grant the Company $50,000 for the
purpose of paying for 200 U-CordTM stem cell collection kits and the first year
of cryogenic storage for the benefit of indigent expectant parents. Upon
execution of the agreement the Company was granted $25,000 which is classified
as a deposit on the balance sheet. The Company is currently working with local
physicians and hospitals to implement this project.
As part of the September 1998 agreement between Steve Ferens and the
Company, CRYO-CELL committed to issue 200,000 shares of the Company's restricted
common stock in exchange for marketing services to be provided by Ferens and his
team of sub-contractors. The contract is for a five year period and provides for
the issuance of 10,000 shares of stock upon the signing of the agreement, 40,000
shares upon the implementation of the marketing program and 50,000 shares to be
issued at various times during the contract period. The agreement calls for the
balance of 100,000 shares to be issued upon the achievement of certain
performance goals during the third year of the agreement. The Company issued
60,000 shares as of August 31, 1999.
In January 1999, the Company extended its marketing agreement with Lamaze
Publishing Company to sponsor the Lamaze tutorial tape and full page
advertisements in the Lamaze Parent Magazine at a cost of $200,000. The extended
agreement commences in April 1999. As of August 31, 1999, the Company paid
$155,235 of this agreement and is recognizing this as a prepaid expense on the
balance sheet. The prepaid expense is being prorated over the term of the
contract and expensed accordingly. In July 1999, the Company was informed that
Lamaze Publishing Company was acquired by iVillage, Inc., a leading online
women's network. The Company's agreements with Lamaze will remain in tact,
including the exclusivity provisions for first rights for renewal each year.
9
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1999
(UNAUDITED)
NOTE 5 - LEGAL PROCEEDINGS
On July 20, 1998, the Company won a jury verdict in San Francisco Superior
Court against the University of Arizona and other defendants. The award was
$1,050,000 for the breach of contract and an additional $120,000 was awarded to
the Company for the University of Arizona's misappropriation of trade secrets.
The court rejected three post-trial motions by the University of Arizona to
reduce the award or set aside the verdict. In August 1999, the Company accepted
the University's settlement offer of $800,000.
On February 10, 1999 the Company, the Company's Executive Vice President,
the Company's legal counsel and the Company's CEO and Chairman were named as the
defendants in a lawsuit filed in the Superior Court of Orange County, California
by Horwitz & Beam, the attorneys which had represented CRYO-CELL in its suit
against the University of Arizona et al. The plaintiff alleges breach of
contract and seeks payment of $129,822 in allegedly unpaid fees and costs
associated with the University of Arizona litigation. The plaintiff also asserts
claims of misrepresentation. In reference to these misrepresentation claims,
plaintiff has filed a Statement of Damages, which asserts $1,000,000 in general
damages and $3,500,000 in punitive damages.
The Company believes there is no merit to the suit and that none of the
claimed $129,822 in fees is due and owing under the contract. The Company
believes that Horwitz & Beam brought this action and improperly sought punitive
damages for the purpose of interfering with the Company's efforts to raise and
maintain additional capital.
Accordingly, on June 14, 1999, the Company filed: (1) an answer denying all
liability; (2) a counterclaim for breach of contract and malpractice, seeking in
excess of $1 million in compensatory damages arising from the malpractice; (3) a
motion to dismiss the individual defendants for lack of jurisdiction; and (4) a
motion to dismiss all punitive damages allegations against the Company. The
court has not yet ruled on these motions.
NOTE 6 - CONVERTIBLE NOTES
In November 30, 1998, the Company borrowed $530,000 on eleven convertible
promissory notes. The notes had a term of six months at which time the principal
plus interest, at 8% per year was due. The promissory notes contained a
conversion provision to the Company's restricted common stock at $2.00 per
share. In February 1999, the loan agreements were converted to 302,000 shares of
the Company's common stock at a price of $1.75 per share. The loan holders
agreed to forego any accrued interest and any registration rights. All shares
are subject to Rule 144.
In October 1998, the Company entered into a convertible note agreement
borrowing $10,000 from an investor. The note has a term of one year at which
time the principal plus interest, at 20% per year, will be due. The noteholder
has the option to be paid in full for interest plus principal or to convert to
the Company's common stock at $2.00 per share. In October 1999, the noteholder
converted the promissory to 6,000 shares of the Company's restricted common
stock. All shares are subject to Rule 144.
10
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1999
(UNAUDITED)
NOTE 7 - STOCKHOLDERS' EQUITY
In December 1998, the Company received $580,320 from the sale of 310,000
shares of its restricted common stock at $1.87 per share. The proceeds from this
transaction were used to repay the line of credit (see Note 3). In January and
February 1999, the Company received $200,000 from the exercise of options to
purchase 200,000 shares of its common stock at $1.00 per share.
In May 1999, the Company received $84,888 from the sale of 40,000 shares of
its restricted common stock at a price of $2.12 per share. In June 1999, the
Company received $200,000 from the sale of 100,000 shares of its restricted
common stock at a price of $2.00 per share. In August 1999, the Company received
$55,608 from the sale of 25,000 shares of its restricted common stock at a price
of $2.22 per share.
NOTE 8 - AGREEMENTS
ARIZONA
On February 9, 1999, the previous agreements with the Company's Arizona
Revenue Sharing Partners were modified. The modifications were necessary due to
the litigation with the University of Arizona and the investors entered into
Revenue Sharing Partnership Agreements for the state of Florida. The Company
will credit the investors $450,000 (previously paid) toward the purchase of the
partnership. The balance of $550,000 will be paid through their entitlements.
Per the revised agreement the partners were issued 100,000 options of the
Company's common stock at an exercise price of $2.50 per share with a five year
term. The Revenue Sharing Partnership applies to storage originating from
clients in the state of Florida and covers a total of 33,000 spaces. It cancels
the investor's previous obligation to provide the Company with $675,000 plus
accrued interest.
ILLINOIS
In 1996, the Company signed agreements with a group of investors entitling
them to an on-going 50% share in CRYO-CELL's portion of net storage revenue
generated by the specimens stored in the Illinois Masonic Medical Center. Since
the company will no longer be storing new specimens in Chicago, the agreements
were modified in 1998 to entitle the investors to a 50% share of the company's
portion of net revenues relating to specimens originating in Illinois and
contiguous states and stored in Clearwater up to 33,000 spaces.
BIO-STOR
On February 26, 1999, the Company modified all previous agreements with
Bio-Stor International, Inc. The modified agreement enters Bio-Stor into a
Revenue Sharing Partnership Agreement for the state of New York. The Company
will credit Bio-Stor's $900,000 (previously paid) toward the purchase of 90% of
the New York partnership. Bio-Stor will receive 90% of the 50% share in
CRYO-CELL's portion of net storage revenues generated by the specimens
originating from the Company's clients in the state of New York for up to 33,000
shared spaces. This agreement supersedes all other agreements between Bio-Stor
International, Inc and the Company.
11
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1999
(UNAUDITED)
NOTE 8 - AGREEMENTS (CONT'D)
DUBLIND PARTNERS, INC.
In February 1999, the Company entered into an exclusive agreement with
Dublind Securities, Inc. and Dublind Partners, Inc. concerning the placement of
securities in a minimum amount of $3,500,000 up to $7,000,000. The agreement
engaged DSI until July 1, 1999 and expired if a minimum of $3,500,000 was not
raised by that date.
Dublind Partners, Inc. did not raise the minimum capital required by the
agreement by July 1, 1999. The Company did not agree to extend the agreement and
believes that it can arrange alternative financing on more favorable terms, with
significantly less dilution of the Company's common stock.
NOTE 9 - RECEIVABLE LITIGATION
The University of Arizona made a settlement offer to the Company in the
amount of $700,000 in the second quarter of 1999. On or about September 27, 1999
the Company accepted the University's offer of $800,000 and settled the matter.
The Company has deducted $289,822 from the $800,000, and recognizes the balance
of $510,178 as a receivable on the balance sheet. The deduction includes a 20%
contingency fee ($160,000) to the Company's previous attorneys and $129,822 in
contested legal fees that the Company feels are not due and owing under the
contract (see Note 5). In September 1999, the Company received $441,000 from the
University of Arizona. The remaining balance of $359,000 is being held in
escrow, to satisfy a legal lien filed November 4, 1998 by the Company's previous
attorneys, Horwitz and Beam. The Company disputes their position and has
countersued Horwitz and Beam for malpractice and is seeking $1,000,000 in
compensatory damages and an unspecified amount of punitive damages deemed
appropriate by the court.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
CRYO-CELL International, Inc., is a Delaware Corporation, incorporated on
September 11, 1989. It is engaged in cellular storage and the design and
development of cellular storage devices. During the period since its inception,
the Company's activities have principally involved the design and development of
its cellular storage unit ("CCEL Cellular Storage Unit") and in securing patents
on the same. The Company's primary focus is to utilize its cellular storage
experience and technology for the cryopreservation of umbilical cord blood
(U-Cord(TM)) stem cells in its own processing and cryopreservation facility at
its Clearwater, Florida headquarters. During 1998 the Company consolidated its
new specimen processing and storage activities to its own state of the art
facility in its Clearwater, Florida headquarters.
In June 1998, the Company signed an agreement with Women & Infants Hospital
of Rhode Island for the establishment of a commercial placental/umbilical cord
blood bank at their Providence, Rhode Island medical facility. Women & Infants
Hospital currently has annual births in excess of 9,000 and will be offering its
stem cell banking services to the parents of these newborns. Women & Infants
laboratory personnel have completed their training at the Company's state of the
art facility in Clearwater, Florida; commencement of processing and storage at
Women & Infants laboratory is expected to commence within the next few months.
During 1999, all U-cord(TM) blood processing and preservation will be done
at the Company's facility with the exception of those specimens processed at
Women & Infants Hospital in Providence, Rhode Island. It is anticipated that
this shift in focus will limit the number of new Lifespan(SM) Center
implementations in the future.
12
<PAGE>
The Company's technology involves patented, multi-faceted cellular storage
units and the technology for processing stem cells from umbilical cord blood.
The Company believes that its long-term cellular storage unit will provide an
improved ability to store cells or other material in liquid nitrogen, its vapors
or other media. The unit is controlled by a computer system that robotically
inserts vials in pre-selected storage areas inside the chamber. Additionally,
the stored material can be robotically inserted or retrieved by computer on an
individual basis without all of the remaining specimens being exposed to ambient
temperature. The efficient use of storage space and dual identification system
for inventory control is a competitive advantage for the Company. The Company is
the assignee of all patents on the units.
An independent manufacturer utilizing the Company's patented design
currently assembles the unit. The Company has been advised by Underwriters
Laboratories ("U/L") that it has passed all required inspections and the unit is
now U/L listed. In order to affix the U/L label to all units that are deployed
in the future, they must contain the same parts, operating capabilities and
features as in the tested CCEL II model.
In July 1999, the Company was informed that the patent on the CCEL III
computer controlled robotically operated cellular storage system has been
granted. The CCEL III is designed to be multi-functional and to meet
international manufacturing requirements. When completely developed the unit
will be able to store more than 35,000 specimens in 5ml vials. Moreover, as many
as 8 million one inch vials could be preserved in approximately 250 square feet.
The Company's attorneys are filing for patents in 17 European countries,
including the United Kingdom, Germany, France, Italy, Ireland, the Benelux
countries, plus Canada, Japan and others. The prototype is expected to be
complete in the first quarter of 2000.
The following is a discussion and analysis of the financial condition and
results of operations of the Company for the quarter ended August 31, 1999 as
compared to the same period of the prior year.
GENERAL
CRYO-CELL has renewed its agreement with the Lamaze Publishing Company to
sponsor the Lamaze YOU AND YOUR BABY tutorial tape. The agreement calls for
Lamaze to distribute the videotape to 1.8 million women in their third trimester
of pregnancy. Over 90% of first time mothers and 45% of the pre-natal market
avail themselves of the Lamaze Institute for Family Education proven instruction
program. The tutorial tape, which will be distributed by over 12,000
instructors, discusses the importance of cord blood storage and refers viewers
to the full page ad the company has placed in the Lamaze Parents Magazine, which
will be distributed to 2.4 million expectant mothers. In addition, the Company
has also placed an ad in "Lamaze para Padres", Lamaze Publishing's magazine for
Hispanic mothers-to-be. The Company has exclusivity on the tutorial tape in the
cord blood storage category and first right of refusal for renewal of the
agreement beyond 1999.
In July 1999, the Company entered into a 20-year exclusive agreement with
the Cancer Group Institute, LLC, the nation's premier cancer information
service. The Cancer Group's Web site, www.cancergroup.com, is accessed by
approximately 25,000 oncologists, radiologists and cancer patients daily. The
multi-faceted agreement will initially focus on bringing expectant mothers who
have a family history of cancer vital information about preserving their
newborn's umbilical cord blood stem cells. Oncologists working with patients who
are pregnant will be linked to the CRYO-CELL Web site to become more aware of
the affordable alternative to having cord blood "thrown away" as waste material
at birth. The Company will also be working with the Cancer Group to heighten the
awareness of insurance companies, oncologists and cancer patients nationwide as
to the importance of cord blood preservation for the family.
In June 1998, the Company entered into an agreement with International
Broadcast Corporation (IBC). IBC was to produce a one-half hour infomercial
relating to CRYO-CELL's U-CordTM stem cell processing and storage activities.
IBC has since been acquired by 5th Avenue Channel Corp. In May 1999, the Company
signed an exclusive joint venture marketing agreement with 5th
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Avenue Channel Corp. Under the terms of the new agreement, the Company and 5th
Avenue Channel will have an equal 50-50 partnership in a new corporation, the
Newbirth Network, Inc. This new entity will offer important health information
and products to expectant parents through 5th Avenue's television, Internet and
mass marketing distributions. Upon calling 5th Avenue Channel's toll-free
number, expectant parents can receive a videotape explaining the option they
have for storing their newborn's cord blood stem cells. 5th Avenue Channel has
committed to producing and distributing a minimum of one million tapes for a
small shipping and handling charge.
In September 1999, the Company was granted a Blood Bank license to operate
in the state of New Jersey. The Company is now authorized to operate in all 50
states.
The Company markets its cellular banking services by targeting expectant
parents through direct information to obstetricians, pediatricians, Lamaze
instructors, childbirth educators, certified nurse-midwifes and other related
healthcare professionals. In addition, the Company exhibits at conferences,
trade shows and other media which focus on the expectant parent market. Of
significant note is the increasing level of interest being generated by the
Company's website, www.CRYO-CELL.com.
During the quarter, the Company continued its program of marketing its
Revenue Sharing Agreements. Under this arrangement the Company shares its
storage revenues with investors who receive entitlements on storage spaces.
YEAR 2000
The Company has analyzed the Year 2000 (Y2K) impact on its business and has
determined that this will not have a material impact to the Company's business,
products, operations or financial condition. The Company does not use any
internally developed application platforms. All business support systems and
applications are created on commercially available packages that are either
already confirmed to be Y2K compliant, or will be compliant with an upgrade to
the latest release. All software upgrades are scheduled for completion during
the fourth quarter of 1999. An Integrated Systems Test will be scheduled once
all of the software applications have been upgraded.
The outside independent contractor responsible for manufacturing the CCEL
II Cellular Storage System has certified that, once the operating system and
database applications have been upgraded to the most current release, it will be
Y2K compliant. The upgrades have commenced and are scheduled for completion
during the fourth quarter of 1999.
The Company has required commitment from its vendors that they will provide
the Company uninterrupted service before, during, and after January 1, 2000. All
of the mission critical vendors the Company uses are either already Y2K
compliant, or will be compliant by the end of the fourth quarter of 1999.
MANAGEMENT
At present there are 15 employees on the staff of the Company. Daniel D.
Richard serves as the Chairman of the Board and Chief Executive Officer.
In February 1998, Gerald F. Maass joined the Company as Executive Vice
President and General Manager. Mr. Maass resigned from a 10-year tenure with
Johnson & Johnson (Critikon) where he served as International Director of
Marketing. Mr. Maass' international contacts will be invaluable in the
development of strategic alliances for the Company's proprietary technology in
foreign markets. Along with extensive marketing experience, Mr. Maass also
brings to CRYO-CELL experience in the medical technology field. In September
1998, Mr. Maass was appointed a member of the Company's Board of Directors.
In April 1999, Geoffrey J. O'Neill, Ph.D. joined the Company as Laboratory
Director. Prior to joining the Company Dr. O'Neill was at Florida Medical
Center, Ft. Lauderdale, Florida where he
14
<PAGE>
established an autologous program for the collection, isolation and
cryopreservation and storage of hematopoietic progenitor cells, primarily for
breast cancer patients. Dr. O'Neill was previously Director of the Bone Marrow
Laboratory at the University of Miami/Jackson Memorial Hospital, establishing
the laboratory within the Department of Pathology. As Assistant Director of the
Transfusion Service, he had responsibility for this AABB accredited program,
which supported both allogenic and autologous stem cell transplants. Dr O'Neill
did his post-doctoral fellowship in Immunobiology at Memorial Sloan-Kettering
Cancer Center, NY, under the auspices of Dr. Robert A. Good, a pioneer in bone
marrow transplantation. His undergraduate degree is in microbiology; his Ph.D.
in immunology. A co-author of over 80 publications, Dr. O'Neill is an expert in
the fields of immunohematolgy, blood banking, HLA typing and flow cytometry.
RESULTS OF OPERATIONS
REVENUES. Revenues for the nine months ended August 31, 1999 were $862,040 as
compared to $199,125 for the same period in 1998 which represents a 333%
increase. The increase in revenues reflects the significant growth in the
processing and storage revenue associated with the Company's U-CordTM stem cell
program. The Company believes that the growth is a result of its investments in
its various marketing programs, including its activities with Lamaze Publishing,
the launch of the Medical Marketing Network and the increased traffic on its
updated Web site www.CRYO-CELL.com.
COST OF SALES. Cost of sales for the nine months ended August 31, 1999 were
$364,879 as compared to $47,221 in 1998. For the period ended August 31, 1999,
$38,265 of the total cost of sales represents the entitlements associated with
the Revenue Sharing Agreements. The remaining cost of sales for the nine months
ended August 31, 1999 represents the associated expenses resulting from the
processing and testing of the U-CordTM specimens in the Company's own state of
the art laboratory in Clearwater, Florida.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses during the nine months ended August 31, 1999 were
$1,981,775 as compared to $1,480,115 in 1998. The increase reflects the expense
of market development, client services associated with the Company's cellular
storage program, continued product development, and the establishment of an
expanded management team to handle the continuing growth. In addition, the
Company incurred non-recurring legal expenses associated with the settlement
with the University of Arizona and the malpractice litigation with the Company's
previous attorneys, Horwitz and Beam. The legal expenses account for 16% of the
total marketing, general and administrative expenses for the nine months ended
August 31, 1999 and were paid for with registered shares of the Company's common
stock.
RESEARCH, DEVELOPMENT AND RELATED ENGINEERING EXPENSES. Research, development
and related engineering expenses for the nine months ended August 31, 1999, were
$62,711 as compared to $155,219 in 1998. The expenses incurred reflect the
continued development of the Company's second generation cellular storage unit,
as well as, the research and development of the Company's third generation
cellular storage systems.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1999, the Company had cash and cash equivalents of $133,538
as compared to $126,457 at August 31, 1998. In September 1999, subsequent to the
balance sheet date, the Company received $441,000 as part of the settlement
agreement with the University of Arizona. The balance of the settlement
($359,000) has been placed in escrow to satisfy a legal lien (see Note 9). The
Company believes that this entire balance will ultimately be realized once the
litigation with Horwitz & Beam is resolved.
To date, the Company's sources of cash have been from the issuance of its
own equities, the sale of Revenue Sharing Agreements, the borrowing on a line of
credit, the borrowing on a convertible loan and the sale of subsidiary stock.
15
<PAGE>
The Company anticipates that cash reserves, cash flows from operations and
the anticipated sale of its preferred stock will be sufficient to fund its
growth. Cash flows from operations will depend primarily on increasing revenues
resulting from an extensive umbilical cord blood cellular storage marketing
campaign. The Company's direct sales of its U-Cord(TM) cellular storage program
have begun to increase significantly due to the awareness being created through
its activities with Lamaze Publishing, the Company's Web site and other forms of
marketing exposure.
FORWARD LOOKING STATEMENTS
In addition to historical information, this report contains forward-looking
statements within the meanings of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The forward-looking
statements contained herein are subject to certain risks and uncertainties that
could cause actual results to differ materially from those reflected in the
forward-looking statements. Factors that might cause such differences include,
but are not limited to, those discussed in the section entitled "Management's
Discussion and Analysis or Plan of Operation." Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. CRYO-CELL International, Inc.
(the "Company") undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
other documents the Company files from time to time with the Securities and
Exchange Commission, including the most recent Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q to be filed by the Company in 1999 and any
Current Reports on Form 8-K filed by the Company.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
I. In December, 1992, CRYO-CELL entered into an exclusive agreement with
the University of Arizona to develop and enhance a commercial (paid
for) cord blood stem cell bank. CRYO-CELL provided the means for the
University to obtain approximately 1400 paying clients. Prior to the
termination of the exclusive agreement, which CRYO-CELL alleges was
unwarranted, the University breached its contract with CRYO-CELL and
entered into an Agreement with Cord Blood Registry, Inc. (CBR).
On or about July 11, 1996, CRYO-CELL filed suit in San Francisco
Superior Court against the University of Arizona, Dr. David Harris and
Cord Blood Registry, Inc. The suit claimed breach of contract and other
related business torts. Months later, after settlement discussions were
unproductive, the University of Arizona counter-sued CRYO-CELL for
breach of contract and negligent misrepresentation.
On July 20, 1998, as a result of the evidence, the jury awarded
$1,050,000 against Defendant University of Arizona. In addition, an
award of $120,000 was granted against the University of Arizona and
David Harris, individually, for misappropriation of trade secrets. The
jury voted unanimously against the University and in favor of CRYO-CELL
as to the counter claims. The court rejected three post-trial motions
by the University of Arizona including a request to reduce the award or
set aside the verdict. The University of Arizona made a settlement
offer to the Company in the amount of $700,000 in the second quarter of
1999.
On or about September 27, 1999 the Company accepted the University's
offer of $800,000 and settled the matter. On September 30, 1999, the
Company received $441,000 from the University of Arizona. The remaining
balance of $359,000 is being held in escrow, to satisfy a legal lien
filed November 4, 1998 by the Company's previous attorneys, Horwitz and
Beam. The Company disputes their position and has countersued Horwitz
and Beam for malpractice and is seeking $1,000,000 in compensatory
damages and an unspecified amount of punitive damages deemed
appropriate by the court.
II. CRYO-CELL retained the services of Horwitz & Beam, a California law
firm, to handle the above described lawsuit including its allegations
against CBR for interference in a legitimate contract between two
parties and unfair business practices, among other claims. The court
granted a summary judgment dismissal in favor of CBR. CRYO-CELL
believes that Horwitz & Beam mishandled the CBR aspect of the case and
certain aspects of its case against the University of Arizona. There is
a dispute concerning the amount of fees owed by the Company to Horwitz
& Beam.
On March 8, 1999, the Company, the Company's Executive Vice President,
the Company's legal counsel and the Company's CEO and Chairman were
named as the defendants in a lawsuit filed in the Superior Court of
Orange County, California by Horwitz & Beam, the attorneys which had
represented CRYO-CELL in its suit against the University of Arizona et
al. The plaintiff alleges breach of contract and seeks payment of
$129,822 in allegedly unpaid fees and costs associated with the
University of Arizona litigation. The plaintiff also asserts claims of
misrepresentation. In reference to these misrepresentation claims,
plaintiff has filed a Statement of Damages, which asserts $1,000,000 in
general damages and $3,500,000 in punitive damages.
The Company believes that the naming of certain officers and the
Company attorney individually, (although they were operating in their
corporate capacities) is an abuse of the civil process and, moreover,
is an attempt to interfere with the Company's ability to raise
additional capital.
17
<PAGE>
The Company believes there is no merit to the suit. The Company
believes that none of the claimed $129,822 in fees is due and owing
under the contract.
Accordingly, on June 14, 1999, the Company filed: (1) an answer denying
all liability; (2) a counterclaim for breach of contract and
malpractice, seeking in excess of $1 million in compensatory damages
arising from the malpractice; (3) a motion to dismiss the individual
defendants for lack of jurisdiction; and (4) a motion to dismiss all
punitive damages allegations against the Company. The court had not
ruled on these motions.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation (1)
3.11 Amendment to Certificate of Incorporation (1)
3.2 By-Laws (1)
3.21 Board Minutes to Amendment of By-Laws
10.11 Agreement with InstaCool of North America, Inc. (2)
10.12 Agreement with the University of Arizona (2)
10.13 Agreement with Illinois Masonic Medical Center (4)
10.14 Agreement with Bio-Stor (4)
10.15 Agreement with Gamida-MedEquip (4)
10.16 Agreement with ORNDA HealthCorp
(Tenet HealthSystem Hospitals, Inc.)(4)
10.17 Convertible Note from Net/Tech International, Inc.
Dated November 30, 1995 (3)
10.18 Amended Agreement with Bio-Stor (5)
10.19 Agreement with Dublind Partners, Inc. (6)
10.20 Agreement with Medical Marketing Network, Inc. (6)
21 List of Subsidiaries (3)
27 Financial Data Schedule
-------------------
(1) Incorporated by reference to the Company's Registration
Statement on Form S-1 (No. 33-34360).
(2) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended November 30, 1994.
(3) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended November 30, 1995.
(4) Incorporated by reference to the Companyis Annual Report on
Form 10-K for the year ended November 30, 1996.
(5) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended November 30, 1997.
(6) Incorporated by reference to the Companyis Annual Report on
Form 10-K for the year ended November 30, 1998.
(b) Reports on Form 8-K.
(1) Form 8-K filed September 12, 1997 - Resignation of William
C. Hardy as President, Chief Operating Officer and member
of the Board. Resignation of Leonard Green from the Board
of Directors.
(2) Form 8-K filed November 18, 1997 - Company filed a
multi-count lawsuit in the United States District Court,
Northern District of New York claiming that Stainless
Design Corporation of Saugerties, New York breached its
contract.
Supplemental Information to be furnished with reports filed
pursuant to Section 15(d).
(c) No annual reports or proxy material have been sent to security
holders for the current fiscal year. Copies of any such report
or proxy material so furnished to security holders subsequent
to the filing of the annual report on this form will be
furnished to the Commission when sent to security holders.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRYO-CELL INTERNATIONAL, INC.
/s/DANIEL D. RICHARD
--------------------
Daniel D. Richard
Chief Executive Officer
Date: October 14, 1999
20
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Date Schedule (for SEC use only)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 133,738
<SECURITIES> 336,585
<RECEIVABLES> 570,023
<ALLOWANCES> 13,380
<INVENTORY> 0
<CURRENT-ASSETS> 1,052,054
<PP&E> 2,603,259
<DEPRECIATION> 222,816
<TOTAL-ASSETS> 3,769,958
<CURRENT-LIABILITIES> 491,846
<BONDS> 0
0
0
<COMMON> 88,060
<OTHER-SE> 3,009,329
<TOTAL-LIABILITY-AND-EQUITY> 3,769,958
<SALES> 862,040
<TOTAL-REVENUES> 862,040
<CGS> 364,879
<TOTAL-COSTS> 2,495,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,922
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (834,811)
<EPS-BASIC> (.10)
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